Sprint: Waiting on SoftBank Response to Dish Risky, Says Canaccord

By Tiernan Ray

Shares of Sprint-Nextel (S) are up 5 cents, or 0.8%, at $7.14, above the $7.02 per share in cash and stock that Dish Network (DISH) offered holders on Monday in a proposed $25.5 billion merger, which CNBC’s David Faber this morning reports is being considered by a special committee formed by Sprint’s board of directors. Sprint had already been well into the regulatory approval process of a recapitalization offer from Japan‘s Softbank that it accepted back in October.

Dish shares are up 12 cents at $37.95, while Clearwire (CLWR), the broadband wireless partner half owned by Sprint, and which is expected to also become part of a combined Sprint-Dish, is up 2 cents, or 1%, at $3.29.

Canaccord Genuity‘s Greg Miller, who has a Hold rating on Sprint shares, and a $5.50 price target, writes this morning that while there are trade-offs between the two competing offers, he expects that there will be little in the way of comment from Sprint forthcoming, as all parties wait to see whether Softbank makes a next move:

We see little reason for Sprint to offer an opinion on that matter in the near term; rather we expect silence from all parties until everyone understands what Softbank’s next move could be. Absent a counter bid, it remains unclear to us if Sprint will push the Softbank proposal to a shareholder vote or even the Clearwire bid to such a vote when a higher competing offer is out there. The only option that might seem to draw a higher Softbank bid would be for the Sprint board to deem the Dish bid superior.

Absent a response, Miller thinks there are risks to Sprint’s shares given all the possible ways that different transactions could play out, or new transactions enter the market:

With spectrum in increasingly short supply and with carriers deploying spectrum on newer frequencies ahead of schedule, it becomes clear that a spectrum crunch is imminent and although good for spectrum valuations and tower stocks (AMT, CCI and SBAC), it might not be great from the current bidding process for Sprint itself. Should Clearwire suddenly find itself a feasible alternative to the proposed merger with Sprint (as advertised by Dish itself) or Dish suddenly have anoffer it could not refuse for its own spectrum, then we could envision multiple scenarios that would send Sprint shares lower. The only solid reason we can see that would push the stock higher is a higher bid by Softbank designed to completely knock Dish out of the running.

If you are thinking of different ways to play Sprint on the deal outcomes, MKM Partners analysts today note that “S derivatives continued to dominate the large derivative trades related to event-driven equities” as “Many traders are using S derivatives to participate in the situation.”

Meanwhile, Tuna Amobi with S&P Capital IQ today reiterates a Buy rating on shares of Dish, and a $42 price target, as a multiple of Ebitda, writing that the bid is a “remarkable culmination of recent strategic (and/or opportunistic) conceits to foster its U.S. wireless entry.”

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There are 3 comments

APRIL 18, 2013 3:08 P.M.

Ed B. wrote:

Sprint has already agreed to the Softbank purchase.
Dish is wasting their time, I believe.
Dish may not like it, but it is not his to break.

APRIL 18, 2013 7:45 P.M.

Dr. Analyst wrote:

The dish bid is clearly superior. They have the satellites, the spectrum, and the U.S. administrative operations that can be combined with sprint's to achieve tremendous economies of scale. Softbank has none of that.

Further, sprint is being forced by softbank to offer a ridiculously low bid for the remainder of clearwire, which clearwire shareholders are solidly against. Without clearwire's or spectrum, sprint is well short of what they need to compete.

Dish would also be certain to pass regulatory muster. Softbank's ambitions to acquire sprint/clearwire would leave softbank, a foreign company, controlling more RF spectrum than AT&T and Verizon combined... which is clearly problematic for such a precious, natural resource.

DA

APRIL 18, 2013 9:19 P.M.

HArd INvestor wrote:

Softbank can invest money into the partnership for the LTE buildout. Dish under Mr. Ergen achieved several great unworthy things. He bought out bankrupt Blockbuster for 350million dollars shuttering stores and yes not realizing any momentous gains from the buyout. Then their is DISH itself, they've struggled for several quarters to increase customer retention rates but they are hopelessly out gunned by DirectTV due to programming choice, customer service, and rate plans that are ridiculously overpriced for the markets that they serve. Then their is the issue of being named "One of the Worst Companies to work for in America" a title Charlies' been proud to attain for his company. The final trump card in all this is his pursuing the Hopper technology that allows the commercials to be skipped over its customers. Free choice said Charlie to his 14million subscribers, to bad most of them had to be swayed over to his fee paying service with get this TWO year contracts which the consumer groups just recently held arguments over.

About Tech Trader Daily

Tech Trader Daily is a blog on technology investing written by Barron’s veteran Tiernan Ray. The blog provides news, analysis and original reporting on events important to investors in software, hardware, the Internet, telecommunications and related fields. Comments and tips can be sent to: techtraderdaily@barrons.com.